IP strategies for biotech SMEs
This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight
A year into the covid-19 pandemic, the value and importance of biotechs has been elevated considerably. People expect biotechs and pharmaceutical companies to provide solutions, whether that solution is a vaccine, therapeutic, diagnostic, testing kit, medical device or research and development. Unlike pharmaceutical giants, which have significant R&D resources and are financially capable, small and medium-sized enterprises (SMEs) in the biotech sphere often struggle with budget, trying to balance expense and opportunities for business success.
Today, intellectual property is undoubtedly an asset that can create value, and every company is capable of creating intellectual property. This kind of asset must be planned, maintained and enforced to ensure that time and resources are not wasted. The reward from intellectual property may not be obvious until the day that a potential investor is interested or a deal concluded.
Taiwan’s biotech environment
Taiwan’s government policy encourages and promotes the development of the biotech industry, improving global legal harmonisation, setting up biotech facilities and providing tax incentives for biotech research and development, among other things. Considering that the information and communications technology (ICT) industry in Taiwan is advanced and mature, there are opportunities for biotechs to take advantage of this by combining their biotechnologies with ICT expertise.
In recent years, the number of biotech patent applications in Taiwan has grown steadily. In the past five years alone, the number has almost doubled. However, many biotech SMEs cannot survive through the timeframes currently required by the Taiwan Intellectual Property Office (TIPO) to perform its office functions. For example, genetic testing was once a hot topic, but today many of the biotech patent applicants for genetic testing no longer exist. Planning, acquiring, maintaining, exploiting and enforcing intellectual property poses challenges to in-house counsel and outside IP professionals, but it also challenges a biotech’s chief technology officer and chief financial officer to make the best use of what the company already has, while simultaneously efficiently and effectively allocating budget.
The Biotech and New Pharmaceutical Development Act, effective from 2007 until the 31 December 2021, and which is scheduled to be extended by the government for a further 10 years, provides certain incentives for biotechs and new pharmaceutical companies in Taiwan, such as tax credits for R&D costs and employment training, and reductions in corporate income tax. In December 2020, the government proposed expanding the definition of ‘new pharmaceuticals’ to include regenerative medicine, precision medicine and e-health, among other things, subject to approval by Congress. If approved, combinations of AI and biotech, 5G and biotech, and ICT and biotech would be eligible to enjoy tax and other incentives.
For patents, in addition to the two accelerated programmes used in Taiwan – the Patent Prosecution Highway and the Accelerated Examination Programme – in January 2021, the TIPO launched a new pilot accelerated programme – the Positive Interview Programme – providing fast-track patent examination, especially targeted at start-ups.
From information to assets
The core basis for IP protection, including the protection of trade secrets, know-how and confidential information, is quite simply the protection of information. It is so simple that many SMEs do not even realise the importance of information management.
The protection, management and planning of information is fundamental to the creation of intangible assets, including intellectual property. A biotech SME may own considerable valuable information without even appreciating its existence. For example, the R&D team of a company may work on a project, taking notes and records of R&D development; the team may have regular meetings discussing progress; adjustments are made during experiments and trials before the best mode is found; processes are fine-tuned throughout the manufacturing; and discussions are had regarding a product’s launch, whether from a technical, scientific, financial, marketing, legal or philosophical perspective – all this knowledge, the records and data, whether conveyed orally or in writing, is all potentially valuable information.
Before a company can turn its information into assets, the confidentiality of this information must be maintained, including non-disclosure of information and confidentiality obligations. The SME can then decide whether to disclose the information in exchange for IP protection; for example, to submit a patent application and disclose what is claimed in that application. Alternatively, the SME can keep the information confidential, and keep information such as formulae as a trade secret. Carefully drafted agreements (eg, non-disclosure agreements, joint-development agreements with a non-disclosure clause and an ownership clause, and employment agreements with a non-disclosure clause and an ownership clause, among others) can serve this purpose.
Almost every jurisdiction provides certain protection for trade secrets, know-how and confidentiality information. This can be done through contracts or by compliance with the trade secret laws and regulations of each jurisdiction. Biotech SMEs should keep in mind that most protections available under trade secret-related laws request that the information involved is confidential and that proper measures to protect that confidentiality are taken.
In Taiwan, in addition to protection under the trade secret law, the IP Court has confirmed that information that does not qualify as a ‘trade secret’ may still be protectable under the Criminal Code as a commercial and industrial secret.
Practical tips for biotech SMEs: stage-by-stage IP strategy
After securing the confidentiality and ownership of information, a biotech SME may start to consider its IP strategy, including whether to disclose the information. Setting aside trade-secret protection, assuming that the company wishes to protect its intellectual property by filing IP applications (eg, patent applications), a practical approach for a biotech SME to consider is to plan its IP strategy stage-by-stage according to the development of the company and the progress of its business goals.
At the early stage of planning, resources are usually limited. Scheduling IP applications effectively with limited resources is therefore key. Biotech SMEs can use the US provisional application to obtain a priority date and then file the Patent Cooperation Treaty (PCT) application within 12 months and claim the priority benefit based on the US provisional application. Further, biotech SMEs can strategically delay the entrance to the PCT national phase in order to ease pressure on tight budgets. The choice of the PCT national phase is highly dependent on the nature and lifecycle of the products to be patented, the needs and size of the markets, and the importance of the patents. For example, when a new compound is synthesised, the compound itself and the process for manufacturing it can be included in the patent application if the compound has some effects in vitro or in the animal experiment at that stage.
Biotech SMEs will have the capacity to improve the original ideas or thoughts embedded in the patent applications filed at the early stage. For example, companies will receive feedback through the various tests of the prototype or method, and then improve the steps to make the (second and third generation, and so on) prototype or method more efficient or productive. The patent strategy for the middle stage can include those improvements in order to broaden the aspects and scope of the original intellectual property. For example, after several batches of production, companies may find that under certain conditions the yield or purity of the product will increase. Alternatively, companies may design a unique intermediate, which can be used to replace the one in the original process to enhance the selectivity of the reaction. Companies might try to protect those improvements, such as the specific conditions or the intermediate, in separate patent applications.
Exploiting IP strategically
After expansion of the patent portfolio and further development of the patent product or method, biotech SMEs should consider cooperating with other companies to co-develop the product or method or to (cross) licence the IP portfolios. Such IP activities should include:
- sharing R&D costs of conducting clinical trials in different markets;
- reducing the costs of obtaining market approvals in different jurisdictions;
- strengthening marketing capability by partnering with domestic distributors;
- co-working with big pharmaceutical companies to gain experience in dealing with management; and
- receiving licensing fees and, later, milestone fees with the development of the product to increase cash flow.
Data is a monetisable asset
While biotechs may focus more on technology aspects, it is worth highlighting that data is also a monetisable asset. Data and experience accumulated during research and development and clinical trials is important and may be licensed and monetisable, irrespective of whether the company would like to continue the original business. In addition to traditional intellectual property such as patents, data can also be protected in the form of a trade secret. The Taiwan Trade Secret Act, the EU Trade Secret Directive and the US Defend Trade Secrets Act, among others, lay the ground for biotechs to protect, make use of and monetise their data and other types of information. Carefully drafted agreements enable biotechs to secure their assets.
Talent is a valuable asset; agreements must be monitored and managed
It is vital to keep in mind that talent is at all times a valuable asset, and agreements, whether research, development or product-related, must be monitored and managed. Experience shows that compared to other industries (eg, the semiconductor industry), biotech experts tend to view the data as experience, and the technology as the developed the fruit of their continuous research, which was funded by different entities at different stages under different agreements – making IP ownership complicated in many cases. Engaging IP professionals for periodic training will assist a biotech SME to identify and protect its intellectual property in a practical way. Equipping biotech talents with IP sense and knowledge from the start is the cornerstone of success. It is essential for the company to review and check the agreements made with its employees, and to fund providers and business partners to avoid unwanted disputes.
Engaging venture capital
Biotech SMEs could be valued by potential investors because of their IP strategies. However, it is not uncommon for a biotech SME to have insufficient knowledge and experience or a poor market-oriented approach when considering its R&D projects, IP planning and product roadmap. Instead of doing everything itself before pitching to an investor, a biotech SME should also consider engaging venture capital as early as possible. Experienced venture capitalists could provide the necessary resources to assist a biotech SME to plan the whole picture from a market-oriented perspective, including assisting the company to establish a financially practical proposal in projecting the future. Biotech product research and development is time-consuming, often taking years before the company can enjoy the fruits of its labour. To be rewarded as early as possible, an investor should assist the biotech SME to ascertain whether there is anything that can be splintered off as an independent profit-generating project. For example, it may be an option to use a licensing agreement at different stages aiming at different subjects. The participation of a reputable and experienced venture capital company may signal other investors to consider joining. This may help the company to have a better financial structure and sustain continuous technology improvements and IP planning.
The Taiwan government provides a friendly environment for incubative and innovative start-up biotech companies, which attracts large international pharmaceutical and medical device companies. There are more and more opportunities for Taiwanese biotech companies to work jointly and share new ideas with international organisations, and IP rights clearly play a vital role in this. With limited budgets, biotech SMEs may schedule their IP plans to meet the varied needs at different development stages and thereby maximise their innovative results.